Impact of Health Reform on Business and Labor November 9, 2007 ekaplan@Segalco

1. Impact of Health Reform on Business and LaborNovember 9, 2007ekaplan@Segalco.com

2. Employer’s Current State - Health Benefit Programs 1. Costs • Employers continue to overpay • Medical trends still dramatically outpace wages and CPI 2. Quality • Limited focus on provider quality and outcomes • Significant hospital and provider quality and cost variations 3. Service • Vendors are not held accountable for performance • Lack of sophisticated data integration and analysis 4. Highly Visible Benefit • Health benefits still a major factor for employee hiring and retention 5. Increasingly Difficult to Stay Competitive • Some looking to government takeover – most are not doc#682738v1

3. Employer’s Desired State – Are these your goals? 1. Manageable Costs: • Long term medical plan inflation closer to overall CPI increases 2. Quality: • Provide access to quality providers, facilities, treatments • Create awareness and incentives to direct patients to quality providers 3. Service: • Highly responsive vendor support services • High levels of member satisfaction 4. Attractive Benefits: • Employer of choice, benefits are looked upon favorably 5. Stay Competitive: • Most unions and employers expect to stay involved in the health and productivity issues of their workforce doc#682738v1

4. Working Within the Reality of Market Conditions • Medically uneducated consumers • Consumers insulated from costs once third party payer takes over • Providers don’t truly compete on quality and price • Widely varying physician practice patterns • Demand for medical care is inelastic when a crisis occurs (not like other markets) • Patient noncompliance with physician-recommended treatment • Poor therapeutic use of prescription drugs • Regression to past behavior • Fragmented strategies and medical management • Ineffective health promotion and participant health education Result - Up to fifty percent of health care is avoidable (LeapFrog Group), $2,000 per employee per year (MBGH) doc#682738v1

5. Current Employer/Labor Battle Field – Three-pronged approach VendorManagement • Vendor Audits • Performance Standards • Managing the Renewal Process • Aggressive Vendor Contracts • Maximize Vendor Service • Direct to Quality Providers IndividualHealth CareManagement PlanManagementandPlan Design • Benefit Philosophy and Strategy • Intelligent Plan Design • Patient Copays/Out of Pocket Costs • Eligibility Rules • Member Contribution Strategy • Rx/Medical Integration • Consumer Driven Plans/HRA/HSAs • Care Management • Disease Management • Health Risk Appraisals • Risk Stratification • Patient Advocate/Support • Wellness, Fitness and Preventative Care Communication Is the Constant Keeping costs under control requires focus on all three categories doc#682738v1

6. What do Employees Really Want? Provide Your Workforce with: • Adequate financial protection from catastrophic medical costs • Affordable choices to purchase coverage that fits an employees • Disposable Income • Risk Tolerance • Access to purchase ancillary insurance options • Dental, • Life, Disability, • Long Term Care • Tools • To self care, understand treatment choices • To select physicians and facilities • To simplify claim process, budget out of pocket costs doc#682738v1

7. Health Care Reform Must Not Rely on Individual Insurance Concepts Desired Features of Health Care Reform Concepts • Focus on cost and quality transparency • Maintain the social insurance concepts of group subsidy • Hold vendors accountable for results • Programs that improve consumer health literacy • Keep risk in large group pool for rating/Create statewide reinsurance pools for high amount claims (medical stop loss) • Create more effective market forces for providers to compete on price and quality doc#682738v1

8. Group Health Rating - Advantages Group Underwriting: • Reduces the cost of risk segmentation and selection • Reduces the cost of marketing and administration • Enables carriers/employers to spread costs of catastrophic claims • Avoids the eventual gap between healthy employees and participants with significant health conditions • Enables regulators to protect individuals more effectively doc#682738v1

9. Are Participants Getting Proper Screenings? Tremendous amount of non-compliance among workforce doc#682738v1

10. Health Reform must Involve Improving Patient Health Literacy High member plan can lead to poor treatment compliance • Approximately 50% of patients take meds as prescribed • 31% had not filled an Rx they were given with cost being a primary reason • 16% of adults take medicine less frequently than prescribed Source – National Council on Patient Informationand Education, 2007 Some Other Facts • 60-80% of health care costs can be tied to five behavioral issues (Dr. Ray Levey-Global Medical Forum) • 90% of coronary-artery bypass surgery patients have not changed lifestyle 2 years after surgery (Johns Hopkins) • 20-25% of covered lives smoke but most want to quit. • 74% of employees try to take better care of themselves as health plan cost increase (EBRI) Community based programs may be more effective than employer based programs doc#682738v1

11. Passive Wellness/Health Promotion YES NO Condition Management YES NO Patient Coaching YES NO Provider Cost and Quality Transparency YES NO Guiding Care to Quality YES Passive Disease Management YES NO Care Coordination YES NO Nurse Line YES NO Using Data to Focus Design YES YES / NO Prescription Drug Management YES YES PPO Network YES YES U/R and Case Management YES More efficient program requires investment CURRENT STATE FUTURE STATE doc#682738v1

12. Health Reform Can Help Employer and Labor Groups Employers and Labor Need and Will Support • More predictable medical cost increases • Adequate competition among insurers • Supportive government programs that invest in improving health and wellness educations programs • An even playing field with providers and insurers through greater price transparency • Access to state regulated reinsurance coverage for highly volatile catastrophic claim costs (e.g. medical stop loss for claims above $100,000 per claimant per year) Regardless of who pays we need to address: • Highway robbery pricing of some medical treatments, supplies and services • Overutilization of inappropriate or unnecessary treatments doc#682738v1